Page 264 - DMGT404 RESEARCH_METHODOLOGY

Research Methodology

Notes Example of Type 1 and Type 2 error

Type 1 and Type 2 error is presented as follows. Suppose a marketing company has 2 distributors
(retailers) with varying capabilities. On the basis of capabilities, the company has grouped them
into two categories (1) Competent retailer (2) Incompetent retailer. Thus R1 is a competent
retailer and R2 is an incompetent retailer. The firm wishes to award a performance bonus (as a
part of trade promotion) to encourage good retailership. Assume that two actions A1 and A2
would represent whether the bonus or trade incentive is given and not given. This is shown as
follows:
Action (R1) Competent retailer (R2) Incompetent retailer
A 1 performance bonus is awarded Correct decision Incorrect decision error ()
A 2 performance bonus is not awarded Incorrect decision error () Correct decision

When the firm has failed to reward a competent retailer, it has committed type-2 error. On the
other hand, when it was rewarded to an incompetent retailer, it has committed type-1 Error.
Self Assessment

Fill in the blanks:
4. Hypothesis is rejected when it is true is called ……………error.
5. Hypothesis is not rejected when it is false is called …………..error

12.3 Parametric Tests

Parametric tests have following advantages:
1. Parametric tests are more powerful. The data in this test is derived from interval and ratio
measurement.
2. In parametric tests, it is assumed that the data follows normal distributions. Examples of
parametric tests are
(a) Z-Test,

(b) T-Test and
(c) F-Test.
3. Observations must be independent i.e., selection of any one item should not affect the
chances of selecting any others be included in the sample.

Did u know? What is univariate/bivariate data analysis?
Univariate
If we wish to analyse one variable at a time, this is called univariate analysis. Example:
Effect of sales on pricing. Here, price is an independent variable and sales is a dependent
variable. Change the price and measure the sales.

Bivariate
The relationship of two variables at a time is examined by means of bivariate data analysis.
If one is interested in a problem of detecting whether a parameter has either increased or
decreased, a two-sided test is appropriate.

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